In
this management review report, the paper chooses Tesla Motors Incorporated to
analysis and examined several aspects of Tesla in order to have a whole
understanding of the company. As the most innovative company in the world,
Tesla's core competitiveness is not reflected in the supply and manufacturing
capabilities, but in its powerful ability to integrate resources and the
outstanding industrial design. In addition, many unique elements created a
unique Tesla, its model is bound to be difficult to replicate.

Its
founder Elon Musk is a genius who has successful experiences cross investment,
IT, aerospace, solar, electric vehicles and other fields. Musk has the ability
to realize the optimum combination of IT technology and energy industry. This
is very prominent in Tesla’s battery management system and automotive
information applications.

In
summary, Tesla is more like a technology research and development company,
rather than the sizable car manufacturers. Cost, mileage, safety, etc. is still
the main obstacle to the development of electric vehicles. If Tesla wants to
spread its cars all over the world, industrialization transformation needs to
be completed in the future.

2.
An overview of this company

Tesla
Motors (Motors Tesla) was founded in 2003, headquartered in Silicon Valley,
California, United states. It has wholly-owned subsidiaries in North America,
Europe and Asia. Tesla designs, develops, manufactures and sells fully electric
vehicles with high-performance, and also the advanced electric vehicle
powertrain components and stationary energy storage systems. Tesla’s vehicles,
electric vehicle engineering expertise and business model differentiates it
from incumbent automobile manufacturers. In its annual report, Tesla claims to
use the most innovative technology to accelerate the development of sustainable
transportation. It is publicly admitted that Tesla electric cars are up to the
highest standard in the automotive industry in terms of quality, safety and
performance and it provides the most cutting-edge air and upgrading technology
service and a complete charging solution, it brings the ultimate driving
experience and the most complete consumer experience. Several types of Tesla
Motors include Tesla Roadster, Tesla Model S and Tesla Model X.

3.
Governance

Tesla's
initial venture team is mainly from Silicon Valley, who is using the IT concept
to build cars, which are quite popular among the young people. As of December
31, 2014, Tesla’s executive officers, directors and their affiliates owned
approximately 28.0% of its outstanding shares of common stock. In particular,
the CEO Elon Musk owned approximately 26.7%. Shareholder groups include FMR
LLC, Blackstar Investco LLC, VantagePoint Venture Partners and so on, but their
shareholding percentage is less than 20%. As a result, Elon Musk is able to
control all significant matters relevant to Tesla’s transactions.

Tesla
has a separate audit committee, compensation committee, etc. Its committee structure
is complete and so internal control can be assumed to be effective. However, as
the CEO has absolute control over the company, the management and operation are
highly dependent on him, so this brings risks to Tesla as he also currently
serves as Chief Executive Officer and Chief Technical Officer of Space
Exploration Technologies and Chairman of SolarCity, so his time and attention
cannot be fully devoted to Tesla. The only way to reduce this risk is try to
reduce dependence on its CEO—Musk, which may be hard for Tesla as the human
asset is non replicating and may need lots of time and energy to find or foster
another management team like Musk.

4.
Ethics and Social responsibility

Through
the generous opening of patents and cooperation with other automobile
manufacturers, Tesla provides an efficient way to achieve sustainable energy
supply, and the use of a different energy enables global transportation to have
to depend on oil, and has contributed to the development of pure electric
vehicles in the world. Using only an electric powertrain creates a lighter,
more energy efficient vehicle that is mechanically simpler than currently
available hybrid or internal combustion engine vehicles. Tesla’s management
team estimates that the cost to fuel their vehicles is approximately one-fourth
that of comparable internal combustion vehicles in the United States, and even
less if the gasoline prices are higher. Additionally, governments tend to
encourage the environmentally friendly energy car so incentives may be given to
the producer or consumers.

However,
there are some security issues for Tesla. In October 2010, due to the presence
of potential fire hazards in the battery, Tesla recalled 439 Roadster electric
vehicles, about 1/3 of the total production of 1300. Besides, there are reports
of battery decay of Tesla during these years. Six major security
vulnerabilities exists in the Tesla S Model system, and one of the
vulnerabilities can control the vehicle, according to the Las Vegas black hat
information security conference. In addition, multiple fire problems, battery
problems, and system vulnerabilities, these events have been covered up by
Tesla's public relations team, and did not disclose in the notes of the
financial statements.

5.
Globalization

In
order to accelerate the widespread adoption of electric vehicles, Tesla has
established its own network of sales and service centers and Supercharger
stations globally. It sells vehicles
through its own sales and service network which are continuing to grow globally.
The management team believes the benefits received from distribution ownership
will enable Tesla to improve the speed of product development and improve the
capital efficiency of business. Furthermore, to facilitate Model S vehicle
owners as well as future Tesla vehicle owners’ long distance travel, Tesla
continues to build superchargers networks in the US, Europe and Asia which
provide fast and free charging services.

Tesla
believes the car demand can be stimulated by opening service a center in a new
geographic area. As a result, Tesla stores are complemented with sales
facilities and personnel in service centers can help to expand its retail
footprint more rapidly. They refer to these as “Service Plus” locations which
have reached 159 locations around the world as of December 31, 2014.

As
the world's largest auto market and the world's largest economy, China is an
important part of Tesla's global strategy. But Tesla's development in China has
encountered a number of obstacles: first, consumers are worried about the
electric car charging situation, and thus lead to the management of Tesla
electric car prospects. After Musk’s trip to China in April 2014, the warm
response from Chinese market impressed him, he said the Chinese market will
replace the United States, becoming Tesla's largest market. Tesla plans to sell
55000 new cars worldwide in 2015, and opening China's market is one of the
group's annual target. In China, it has never been lack of potential customers
who can easily buy Tesla S Model luxury car. However, sales data for 2014 is
not satisfactory, the market anxiety may be one of the key factors: Chinese
cities have suffered the traffic problems for a long time and other forms of
energy vehicles also have mushroomed in this competitive market, not to mention
the underdeveloped charging network, so Tesla developed in a hard way in China,
at least for now. But since a significant number of people in China are greatly
supporting this kind of environmentally friendly vehicle, the market still needs
to be digged and time needed to make this concept popular. Musk surely has
great expectations in Chinese market in the future.

6.
Organization

Tesla’s
organizational structure is relatively flat compared to other international
companies. Its CEO has control over major aspects of the company’s management
and operation and as it sells its products over the world by direct sell
instead of through the traditional car dealers, the core management is able to
control each subsidiary directly. The company has few levels of authority, but
wide spans of control, international operations and subsidiaries are supervised
by the headquarter so selling and financial situation in each area can be
communicated quickly.

Because
the electric car is different from the internal combustion engine car, its
product explanation, sales, maintenance need special personnel appointment, so
Tesla’s marketing model is quite like Apple's direct sales model. As a niche
brand, stores can provide customers with more professional services and also a
better brand exhibition. Different from the traditional 4S shop business model,
Tesla pays more attention to customer experience by developing online sales
through the offline experience stores. Tesla provides the whole industry chain
service, directly dispels the consumers concerns from buying a car, use,
maintenance, appreciation and so on. Tesla has helped consumers to take care of
all aspects of the car, from the warranty to charge and other aspects of the
various aspects, all consumers need to do is to pay for the car. But the self
built, self marketing network will increase the cost of Tesla and slow down the
expansion of sales outlets, and even brings legal risks.

7.
Planning

Tesla
currently sells its cars primarily to individual customers. They have strategic
or commercial relationships with Panasonic, Daimler, and Toyota. The
integration of resources is reflected in Tesla's important partners. For
example, the company's first collaboration with the Lotus car supplemented its
weakness in car body, the late introduction of Daimler Benz and TOYOTA as a
strategic partner, completely filled out its lack of experience in the field of
automotive manufacturing. Tesla cooperated with Panasonic on the most core
components of the electric car, to lower the cost of lithium batteries, and to
promote the market demand. In addition, for the charging device, Tesla insisted
on a small route, outsourced to Solar City company hold by its boss Musk. Tesla
is currently working with IT companies in Silicon Valley which shows a strong
digital imprint.

Tesla
electric cars have a huge impact on the traditional internal combustion
vehicles and Tesla's direct sales model is against the traditional car dealers.
It is difficult for electric vehicles to face the challenges and cut into the
mature combustion automobile market, although so far, Tesla has done quite
well, but it also goes very difficult. Musk welcomes other automobile makers to
enter the electric car industry to form an alliance, so the overall electric
car industry will have greater potential, and it would be beneficial for Tesla
to cultivate in the market, any policy breakthroughs, technology accumulation,
electric vehicle industry chain formation would be easier; and it would
increase the volume of electric vehicles.

Though
the plans are promising and quite inspiring, Tesla's financial situation is not
so positive. In the fiscal year of 2014, Tesla earned revenue of $3.198
billion, higher than the $2.013 billion in the fiscal year of 2013; but a net
loss of $294 million indicates a substantial expansion of losses compared to
net loss of $74 million in 2013. The substantial loss made by Tesla was under
the condition of a substantial increase in sales volume. In 2013, Tesla’s
annual sales was 22000, while in 2014 sales volume reached 31655, an increase
of up to 44%. The reason behind this phenomenon lies in the “parts model” used
by Tesla, which is different from the traditional car companies. In order to
reduce costs, Tesla uses parts that have been applied to other brand for
assembly, its research and development costs has been diluted in the initial
stage. But the so-called "component integration" mode is the direct
reason why Tesla sells more but suffer more losses. That means the problem of
Tesla is in the product and non-operating aspect: because of the
non-specificity development, parts used in process is not applicable, Tesla
needs to continue to invest to improve.

8.
Leading

Tesla
is highly dependent on the services of Elon Musk, their Chief Executive
Officer, Product Architect, Chairman of our Board of Directors and largest
stockholder. Tesla electric car represents only the tip of the iceberg of its
leader---Musk's unique thinking mode. From online financial innovation to space
rocket project “Space X”, although represent so different entrepreneurships,
their way of thinking behind is exactly the same. Musk has a "first
principle" way of thinking. He believes every phenomenon has its own first
principle, and all will be smoothly done or easily solved if the principle is
caught. Under the guidance of the principle, he has long been concerned about
the three major areas of finance, transportation, energy. “If you can get the
people excited, business has been done by half” Musk told the young followers.
And that might be the secret of his success.

9.
Controlling

In
the vehicles industry, quality can be vital; Tesla’s quality control efforts
include both product quality and supplier quality, and they are focused on
designing and producing products. Product designs are guaranteed by the product
quality engineers working with engineering team and suppliers to meet
functional specifications and durability requirements. Tesla has its own
supplier quality engineers who are working with suppliers to ensure that
processes and systems are capable of delivering the parts needed at the
required quality level, on time, and on budget.

Due
to several risks faced by Tesla, proper internal control is quite vital. In
terms of financial risks, Tesla’s leverage is too high, while its own operating
cash flow is negative. Because Tesla's product line is relatively narrow
compared with other large scale car manufacturing, and in the current point of
view, the long-term demand for its products is very limited, and management is
not experienced in dealing with multi-line production, Tesla's operational risk
is relatively high. In terms of risks related to business and industry, Tesla
still needs to maintain and strengthen its relationship with its suppliers,
customers, and also its employees. In order to succeed in the competitive
auto-mobile market, Tesla needs to keep up with advances in electric vehicle
technology and make a better product met a wider scale of customers’ needs.
Furthermore, risks associated with its international operations and expansion,
including unfavorable regulatory, political, tax and labor conditions and
establishing in new markets, all of which needs extra care of the management.

References:

TESLA
MOTORS, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2014

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